Stupid Investment of the Week

Unnatural hype on Amish organics stock nothing but a buggy ride

BOSTON (MarketWatch) -- The magazine in my mail last week was almost as thick as my copy of the Weekly World News, and equally believable. "How millionaires are made!" screamed one banner headline. "THE FIRST GREAT ORGANIC GIANT ... and the Starbucks of the organic revolution?" shouted another.

And like the supermarket tabloid Weekly World News, which recently had a cover story promising the exclusive first photos of Heaven, the slick 20-page magazine had a silly photo with a caption that was bound to strike the reader as funny. The picture was of a horse-drawn carriage, and the caption read "Could Amish organic foods make you wealthy?"

In fact, the 20-page "special advertising report" of "The Stock Analyst Group" -- a newsletter I don't subscribe to and could not get information about -- is all about Amish Naturals. But when you cut through the brochure's hype, the only conclusion to draw is that the stock
AMNT
is a deserving Stupid Investment of the Week.

Stupid Investment of the Week showcases the concerns and flaws that make a security less than ideal for the average consumer, in the hope that showcasing trouble in one situation makes it easier to spot elsewhere. The column is not intended as an automatic sell signal, as there may be times when dumping a worrisome investment simply compounds the problem.

The problem in this case has as much to do with the glossy, disingenuous sales pitch as it has to do with the stock itself. And that's a shame for Amish Naturals, a company which at least seems to have its heart in the right place.

The story, as detailed both in the advertising report and on the Amish Naturals Web site, starts with company founder David Skinner Sr. developing a special friendship with some Amish visitors to his North Carolina farm, and eventually opening an Amish products store there.

Fast forward to 2006, when the company built a pasta production facility and used a reverse merger with a shell company to go public. Unlike a lot of companies that go that route, Amish Naturals has thus far been diligent in making its financial filings, a real plus with any start-up. The management team also has a background that looks good, with a history that stems from ConAgra and the Hebrew National brand.

The promotional slick doesn't focus on those balance sheet issues but does use the company's press releases to craft a glowing recommendation and give 10 reasons to "move fast!"

Those reasons include suggestions that "organic" and "Amish" are synonymous (not in my thesaurus), that its first product (pasta) is "consumed in tens of millions of homes," and that the pasta is priced in the middle of the competition, that organic food is the next "food revolution" that will spawn a giant, and that "Amish Naturals could make you rich." The report puts tiny Amish Naturals "in the company of giants," flashing the firm's logo alongside of household brand names Nestle, Campbell Soup and Heinz.

Who stands to benefit?

Just who is saying these things about AMNT is a bit of a mystery. Every other page contains the investor relations phone number from Amish Naturals, making it look like the company is involved. But Randy Lewis, who handles investor relations for the pasta maker, said via e-mail that he has not seen the flyer and has no knowledge of how it came about.

"We have no control over what people say and write about us," Lewis wrote. "As a public company, we communicate with the investment community and have publicly disclosed all material information that is readily available in our own words. We continue to work on executing our business model and feel that we have a bright future ahead of us."

According to a disclosure in the special report, Parker Communications was paid $690,000 to publish and distribute this hype, with the money -- which came from Firstsummit Ltd. -- covering all expenses plus Parker Communication's profits. Neither company could be reached for comment, but there's a simple conclusion to be drawn from the disclosure: The guys who put up nearly 700 grand on this campaign figure they can make a lot more on a small pop in AMNT.

Amish Natural's own paperwork describes it as being a "developmental stage" company. But if you burrow into the financials, you'll see that Amish Naturals has a book value of four cents per share. Now trading in the $3 per share range, but less than a year removed from being a penny stock, the company's price-to-book ratio is ugly.

While there is no debt, and the company recently raised more cash, there are also no significant sales yet. If that doesn't turn around, AMNT will burn through its recent infusion of cash in short order. Hardly the stuff of Heinz or Nestle.

The stock does have one big fan in Scott Fraser, editor of the Natural Contrarian newsletter, who began suggesting AMNT in mid-November, when it was trading in the neighborhood of $1.50 per share. Fraser's logic is similar to what is laid out in the flyer; he did not return calls for comment on the stock. It's worth noting that Fraser's newsletter shows that it has one of the worst long-term track records of any publication tracked by the Hulbert Financial Digest (which is a service of MarketWatch), so the pick hardly should inspire long-term confidence.

Cut through the hype and you've got a company that is virtually all hot air, and no substance. The investment pitch is much more slick than a fax or a spam e-mail, but it's not any more reliable.

"This happens to be glossy and coming through the mail, but it's just a different form of the same old hype," says John Buckingham, editor of The Prudent Speculator newsletter. "If you didn't subscribe to this newsletter and don't know who it's coming from or who paid for it, you should just ignore it."

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